The Debt Counselling Process and How It Works
The National Credit Act (NCA) was introduced “to promote and advance the social and economic welfare of South Africans, promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit market and industry, and to protect Consumers” – The Banking Association South Africa.
What is a Debt Counsellor?
The South African Debt Counselling industry is provided for in the National Credit Act (NCA) 34 of 2005, and is designed to aid consumers in rehabilitating their finances by facilitating a restructuring of their debt according to a registered legal process that includes budgeting guidance and negotiation with credit providers for reduced payments and interest rates. This is one of the relief measures to deal with over indebted consumers in South Africa.
While this course of action is certainly not a quick-fix debt solution, it is designed to help indebted people reset their dangerous money spending habits over time and make positive changes so as to avoid falling into the same debt-filled traps in the future. People who are struggling to maintain their debt obligations in the time frame agreed upon with their credit providers are ideal candidates for a Debt Review.
More and more South Africans are enquiring about this debt solution with salary cuts and job losses on the rise, making it that much more challenging to meet debt payment deadlines. But while enquiries increase, there is still some hesitation as the process seems complex at first glance and has its pros and cons. The rise of internet scams insisting on full upfront payments, surprise fees along the way, and promises of debts disappearing in record speed further impacts consumers’ ability to trust the debt review process.
What Should I Know Before I Consult A Debt Counsellor?
It is highly recommended that consumers be fully aware of what they are signing up for when looking at this debt relief solution, and insist on transparency with their counsellor throughout the process. This starts with a paper trail containing your debt counsellors’ registration details with the National Credit Regulator (NCR), your detailed financial assessment and your debt repayment plan. This process the consumer enters into is totally voluntary, and the consumer gives their consent for the debt counsellor to thoroughly assess their financial position in order to mitigate any further indebtedness and poor planning in the future. The re-ordering and prioritisation of the consumer’s financial obligations by the Magistrate’s Court, along with the willingness and perseverance of the consumer to hold true to the approved plan, is key to the success of the process. Not entering into any additional credit agreements along the way is of course also imperative for the consumer’s success in gaining their clearance certificate.
How Do You Know your Counsellor is Reputable – The NCR and the DCRS Your reputable counsellor should be registered with the National Credit Regulator (NCR), and it is also important that they abide by The Debt Counselling Rules System. Implemented in 2010, the DCRS provides a framework of rules to which your accredited counsellor should adhere. The DCRS is essentially a regulated agreement between counsellors, credit providers and the NCR. It is a red flag for consumers to watch out for should their counsellor not comply with the DCRS; consumers can spend years paying but see little impact on their debt minimizing as promised, and the counsellor is really not securing the best deal for their clients in this case.
What Fees are Paid Upfront as Standard in the Debt Review Process and What I Should be Wary of?
Debt Review fees for services rendered are based on a case by case basis depending on the consumer’s debt size and their affordability, however there are fixed fees to be paid upfront, and debt counsellors are obliged by the NCR to disclose these fees from the start, with the consumer signing off on this. Consulting the National Debt Review Centre’s website to take note of their regulated published fees is an excellent place to start.
A once-off registration fee, as well as an administration fee, are controlled and are due up front to your counsellor. Should your counsellor demand any additional fees upfront, it is highly likely you are being scammed. The consumer should question this immediately and refuse to make any further payments. Consumers should know that 90-92% of what they pay their debt counsellors should go to their creditors, and that as soon as all fees owed have been cleared, no additional ones can be charged further.
What Types of Interest Rates on Debts are Not Negotiated for by your Counsellor?
It’s necessary for the consumer’s debt to be entered into under the National Credit Act by their counsellor in order for the consumer’s protection from creditor badgering and intimidation.
This means that business-related debt, student financial aid owed to universities or the National Financial Aid Scheme, as well as overdue school fees, monies owed to SARS, municipalities and unpaid TV license fees are not applicable. If a cell phone service provider agrees, then outstanding cell phone contract payments can be included under your debt review and interest rates can be negotiated. Vehicle financing and home loans will differ when it comes to the negotiation of interest rates, even though they are qualified to be entered under the NCA.
Should there be pre-existing legal action taken ahead of your debt review application, or any letters of demand (Section 129 Notice), the accounts in question will not be able to be covered in the debt review, including garnishee orders that have already been set in motion. Unsecured credit borrowing such as store cards, credit cards, and loans should be included, and your licensed debt counsellor can negotiate on arrear amounts with consumers’ creditors on your behalf.
What is a Debt Review Certificate and When Do You Get Yours?
The agreement under the DCRS is that your debt is cleared within 5 years, but we know that this period can be shorter if the consumer is able to increase their agreed upon minimum monthly payment, without any penalties incurred, so debt clearance certificates can be obtained by the consumer by 3 years. Once the consumer’s debt counsellor has received all paid-up letters to all credit providers concerned, then a clearance certificate is obtained. This process can be time consuming, depending on factors including the consumer’s creditor cooperation. Once a debt clearance certificate is issued, credit bureaus will receive the update within a few working days, however it is recommended that consumers follow up along this process to confirm that they are unflagged from being over indebted, and can move onto a healthier way of spending and using credit.
The debt review journey once complete means that the consumer can return to their new debt-free lives, and with some patience and perseverance they are able to rebuild credit scores again from fresh.